Tetyana Klymko, a 22 year-old junior at Baruch College in Manhattan, is part of Pave's pilot group of prospects. / Robert Deutsch, USA TODAY

by Hadley Malcolm, USA TODAY

by Hadley Malcolm, USA TODAY

Imagine if your student loan came with a mentor, career advice and professional connections. Oh, and no interest.

It might really be called the anti student loan, and it's essentially what start-up company Pave is offering students and young professionals trying to pursue their passions without being burdened by, or relying on, traditional loans.

And for an age group experiencing unemployment above the national average and paying off tens of thousands of dollars in student loans, Pave may prove an enticing alternative.

In 2011, the most recent year for which there is data, students graduated with an average of $26,600 in debt, according to the Project on Student Debt. And they're graduating into an economy with a 13.1% unemployment rate for 18-29 year-olds, significantly higher than the national rate of 7.9%, according to Labor Department data.

"There is a different way than borrowing and that is, you take a partner," says Sal Lahoud, co-founder and CEO of Pave. "Someone who invests in you and is aligned with you. And we're building a democratic way for people to do this."

Pave (www.pave.com) provides a platform that helps pair teams of "backers" - older, experienced professionals - with "prospects" - 20- and 30-somethings just starting out - in what the founders call a "social financial agreement."

Backers invest a certain amount of money upfront in prospects they're interested in funding and in return, prospects owe their backers a percentage of their annual income for 10 years. Prospects can use their funds however they'd like, from paying tuition or student loans to funding a film or starting a business.

This look at Pave is part of a series on looking at small businesses that are innovating in their areas and starting to get noticed.

A friend in need is an idea, indeed

Lahoud, 29, came up with the idea for Pave after a friend asked to borrow some money. The friend wanted to quit his job at an interior design firm and start freelancing, but needed money to live on as he started out. But Lahoud says he was uncomfortable with lending the money and potentially finding himself in the awkward situation of asking a good friend to repay him, regardless of whether the friend was successful as a freelancer.

"There was basically no positive outcome for me," he says. "If suddenly my friend is in a bad situation and he doesn't know how to pay me back, I feel bad, I'm not going to ask for it back. That's an odd situation."

The encounter got Lahoud thinking though, about how individuals might invest in each other in a way that aligns both parties to work toward a successful outcome, rather than making loans that have to be repaid regardless of how well the recipient of the money does and that give no incentive to the lender to ensure the recipient is successful.

Lahoud ended up returning to his friend and offered instead to make an investment in him. "I told him, 'I'll do this with you,'" Lahoud says. "'I'll give you money and if things go well, I'll share in the upside and if things go badly, I don't get anything.'"

He soon after approached fellow co-founder Oren Bass, 35, about expanding the personal investment concept into a business.

"What we're designing is a marketplace," says Bass, who is also chief operating officer for Pave.

While the pilot group that launched in December of eight teams of prospects, each of whom have several backers, was chosen and paired personally by the founders, the site will soon be automated. It will allow anyone to submit a profile and a fundraising target, explaining who they are, their goals, and what they hope to do with the money.

Potential backers, who also create profiles, can browse the prospects and contact the ones they'd like to invest in. Prospects who get multiple offers can pick and choose who they want on their "team."

To increase the chances of creating successful matches of prospects and backers, right now the Pave team filters the applications it gets from prospects and only invites the most compelling ones to create and post full profiles.

"We have to build a fluid community," Lahoud says. "A fluid platform where, when people come to it, they have a good chance of being funded. You have to curate based on what backers are interested in funding and what prospects want to do."

Eventually though, Lahoud hopes Pave will attract enough backers to allow everyone who applies as a prospect a chance at funding.

Recipe for success, not late fees

Pave also sets itself apart from the student loan market by not charging interest on the funds prospects receive. And there's no such thing as a late fee. If a prospect doesn't pay one month or tax documents show at the end of the year that they underpaid their backers, they have until June 30 of that year to make up the payment. And even then Pave will help the prospect by creating a payment plan and waiving fees.

"The whole goal of it is to maintain a very close relationship with the prospects on the site and understanding that there is financial flexibility," he says. "We don't want to have a situation where the prospect is being chased for payments."

The contract isn't completely fee free, though. Pave makes money by taking a 3% fee out of each prospect's total amount raised. A 1.5% servicing fee is charged to backers.

Because a prospect can have multiple backers all investing different amounts, the prospect can negotiate a different percentage of their income they will owe to each. Pave then aggregates that into a single amount due each month.

Pave's behind-the-scenes team of data scientists and economics professors, among others, helps backers and prospects come to an agreement on how much money will change hands by providing income curves and other analytics that show what the prospect can expect to make over the 10 years of the contract, based on factors such as where they went to school, their GPA, and their field of interest.

The backers' financial return is based solely on how successful their prospects are or become. It's intentional of the Pave business model to give backers incentive to help their prospects succeed professionally, whether by sharing connections, job opportunities or professional advice.

And the company has found that many backers are attracted more to the idea of sharing their knowledge with a younger generation than by the potential financial return.

"A big motivation for backers has been the opportunity to do well by doing good," Bass says. "This means being part of, and having an impact on someone's entrepreneurial, creative or professional careers. Your backer is fully aligned in your success or failure."

Tetyana Klymko, a member of Pave's pilot group, hopes her backers will help her start a career on Wall Street. The 22 year-old junior at Baruch College in Manhattan has four backers who have invested a total of $20,000 in her, and almost all of them work in finance.

One of Klymko's backers says he chose to be involved with Pave primarily because of the opportunity to have a personal impact.

"These guys really put together a great formula where you're not only helping people but your interests are aligned," says Christian Lawless, 36, an angel investor who is also in the process of launching a venture-capital firm after 14 years in the finance industry. "Looking at (Tetyana's) background and aspirations, it seemed to me like it was someone I could really help."

It's the network that may ultimately prove more valuable than the money in a Pave partnership, says Dan Schawbel, founder of research firm Millennial Branding and author of Promote Yourself: The New Art of Getting Ahead.

"Not only do you get new connections (through Pave), you build a strong network, and the network is really the fuel that makes someone successful," he says. "Networks lead to opportunities."

And opportunities are what Pave is trying to help create.

"A loan dictates your choices," Lahoud says. "If we can establish something as a viable alternative funding method for people who actually want to give their passions a chance, we're very happy."